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ExplainSpeaking: Why India is the third-largest economy, not fourth or fifth

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India's Economic Ranking: An Analysis

Recently, Niti Aayog CEO BVR Subrahmanyam claimed that India had surpassed Japan to become the fourth-largest economy in the world, based on data from the IMF. This claim sparked two distinct reactions: one of celebration for perceived economic improvement and another of scrutiny, suggesting India remains the fifth-largest economy.

Different Perspectives on Economic Ranking

  • There is a claim, also based on IMF data, that India has been the third-largest economy since 2009.
  • Economic comparisons can differ based on whether nominal GDP or GDP based on Purchasing Power Parity (PPP) is used.

Understanding GDP Measurements

  • Nominal GDP: The market value of all final goods and services produced within a country in a year.
  • India overtook the UK in nominal GDP after COVID-19, yet still lags behind Japan and Germany.
  • Purchasing Power Parity (PPP): An economic theory used to compare the economic productivity and standards of living between countries.
  • In PPP terms, India became the third-largest economy in 2009 due to the different cost of living and purchasing power across countries.

Nominal GDP vs. PPP

Nominal GDP figures are often used for political mileage as they show rapid growth. However, PPP provides a more accurate measure of economic size and livability.

The Politics of Economic Rankings

  • India's economic growth averages 6-7% since 2004, but many developed nations stagnated after the 2008 Global Financial Crisis.
  • Japan’s GDP is projected to be lower in 2025 than in 1995, showcasing economic stagnation.

Per Capita GDP and Economic Reality

While India’s overall GDP has surpassed the UK, its per capita GDP is significantly lower. In 2021, India's nominal per capita GDP was $2,250, whereas the UK's was $46,115.

  • By 2025, India's per capita GDP is expected to rise to $2,879, while the UK's will increase to $54,949.
  • India's per capita GDP in PPP terms is only 40% of the global average.

Conclusion

The debate on India's economic ranking highlights the complexity of economic measurements and the need to consider both GDP and per capita income for a comprehensive understanding of economic prosperity.

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  • India's Ranking
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